You can go to any number of investment advisory or financial planning firms and find they serve a broad range of clients with a broad range of goals. The mix often includes:
- Early investors saving for a first home
- Mid-career investors investing simultaneously for their children’s education and their own retirement
- Businesses and business owners
- Foundations
- Estates
- Retirees or those preparing for retirement
At first glance, this may seem like a great idea—but in reality, for a pre-retiree or retiree, I believe it’s best to use an adviser whose primary focus is on strategies that maximize the retirement experience.
Most of our clients are either retired or planning a transition to retirement. Prior to bringing on a client and undertaking any assets to manage, our first step is discovery. We discuss retirement goals, review tax returns, current assets, expected income streams in retirement (such as Social Security and pensions), and review current insurance policies and estate documents. Our second step is to prepare and present a financial plan that will serve as a roadmap throughout retirement.
What are the unique issues retirees face?
- Social Security: When and how is it best to take? This choice is doubly important for a couple.
- Pension Choices: Lump sum or a pension stream? If a pension, what kind of pension stream: single or joint and survivor? The best choice will depend on many factors.
- 401(k)s: Should they be rolled into an IRA? If so, how should that IRA be invested?
- Employer Stock in a 401(k) or an Employee Stock Ownership Plan: Is there any way to save taxes with this portion of retirement? There is a specific tax strategy called net unrealized appreciation (NUA), but determining if this strategy will be a benefit depends on each individual situation and detailed tax analysis.
- Roth Conversions: Is there an opportunity to increase tax free savings by making Roth conversions over time?
- Beneficiaries: How should beneficiaries be coordinated between estates and IRAs?
- Estate Documents/Planning: Many times, retirees need to be encouraged, even pushed, to have all their estate documents in order. This is especially true regarding powers of attorney, in which a trusted individual is given power to handle financial affairs should one become incapacitated.
- Taxes: How should investments within accounts be handled to minimize federal taxes throughout retirement? How important is it to keep adjusted gross income below a certain threshold to avoid the Medicare premium surcharge?
- Charitable Giving: What is the best way to give and reduce federal taxes?
It is important these decisions be coordinated to help ensure the most benefit. Rick Rodgers’ book Don’t Retire Broke contains case studies that reveal the impact these decisions have on retirement.
Creating a realistic retirement budget is critical when determining a financial plan. If you don’t know what you are spending, you cannot know what you may need. I suggest you track spending for several years prior to retirement—and even try to live on your retirement spending amount for six months or a year prior to retirement—to see if you have created a workable plan. In my opinion, this is one of the best ways to prepare for retirement!
